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CMA Intermediate · Financial Management and Business Data Analytics · Introduction to Working Capital Management

A company with a good credit rating wants to raise short-term working capital by selling unsecured, discounted promissory notes in the money market with maturity between 7 days and one year. This instrument is best described as:

The instrument is commercial paper. It is an unsecured, discounted, short-term promissory note issued by creditworthy companies in the money market, with maturity of 7 days to one year, and is used to meet working capital needs cheaply.

  1. ACommercial paperCorrect
  2. BDebenture
  3. CPreference share
  4. DTerm loan

Explanation

Commercial paper is an unsecured, short-term money market instrument issued at a discount by creditworthy companies, with maturity from 7 days to one year. Debentures and preference shares are long-term capital instruments, and a term loan is a bank facility rather than a tradable discounted note.

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